A Limited Liability Company
The most common form of companies is a private company limited by shares. The name of such company will end with the word "Limited" in English such as "ABC Ltd.". As already suggested by the name, the liability of its shareholders is only limited, meaning that the shareholders will only be responsible for the amount of capital they pay on their shares.

The Memorandum of a private company limited by shares will state the maximum number of shares that it may issue and the "nominal value" of each share. For example, the share capital of the company is HK$10,000 divided into 10,000 shares of HK$1 each. Shares are usually paid for in full when they are issued. If such a company owes you money and is unable to pay your debt, even if the shareholders are billionaires, they will not be personally liable to pay those debts.

It is not unusual that a company is left with little or no assets to pay your debts. Therefore, when doing business with a limited company, such as lending money to or making a contract with it, it is very important to conduct a company search on the company to check its status. If it is found out that only 2 shares are issued to the shareholders at HK$1 each, then perhaps you would ask the directors or the shareholders of the company to sign personal guarantees for further protection.

Shareholders, Directors and Secretaries of a Company
Briefly, a private Hong Kong company requires at least two subscribing shareholders, i.e. the subscribers. However, the shareholders need not be residents or citizens of Hong Kong and may be corporations registered in Hong Kong or overseas. If shares other than the subscriber shares are issued, a return of allotment disclosing the names and addresses of the shareholders and their shareholdings must be filed with the Registrar. It is always important to know the names of the shareholders of a company as they are the actual owners.

As with the shareholders of the company, at least two directors are required for a private company, they are the people who operate the company. In addition to the directors, it is mandatory to appoint as the company's secretary, a Hong Kong resident individual or a company having its registered office or a place of business in Hong Kong. A return of directors and secretary stating their names, usual residential addresses, Hong Kong identity card numbers or the numbers and issuing country of any passport, together with signed consents to act by the relevant directors, must be filed with the Registrar within 14 days of the appointment of the directors.

It is not unheard of for someone to pretend to be a director of a company and negotiates with you to enter into a contract. In order to be on the safe side, in particular, if it is the first time that you deal with the company, it is always a good practice to check whether the person is genuinely a director of the company to as to avoid the risk from entering into a contract that may be subsequently void.

Changes to the company's registered office, the board of directors and the secretary must be reported within 14 days after the change to the Registrar of Companies. Certain other changes such as the increase of capital, change of memorandum and articles of association, allotment of shares, creation of charge over certain types of assets of the company situate in or outside Hong Kong and passing of special resolutions must be reported to the Companies Registry within certain statutory time limits.

Registration of Charges
One point that demands elaboration is the requirement for the registration of charges created by the company. The following are examples of some of the company charges that requires registration:-

• A charge on land or any interest in land owned by the company
• A fixed charge on the general undertaking of the Company, e.g. machinery, equipments, etc.
• A charge on a ship or any share in a ship
• A charge on goodwill, patent, trademark, copyright owned by the Company

When registering a charge at the Companies Registry, one is required to include the date of the creation of the charge, the amount secured by the charge, the particulars of the property charged and the name of the persons entitled to the charge.

It is very important that you should conduct a company search to confirm whether the property you intended to purchase, say a piece of machinery, is charged in favour of a 3rd party. Since the register of charges is deemed to be a public document, this means whether or not you have viewed the register of charges, you are deemed to know the existence of the charge which is registered. It is the most undesirable for you to purchase a machinery worth over HK$1 million and only after you have paid the purchase money, you realized that a 3rd party bank has a charge over it.

Know who you are dealing with
As seen from above, a company is required under the law to file a lot of information to the Companies Registrar and such information can all be revealed by doing a company search. However, not that many businessmen are aware of it or even if they do, they do not appreciate the significance of such information and how it can help to minimize unnecessary risk. It only costs a few tens of dollars to conduct a company search, but it could help you to save millions by knowing whom you are dealing with in advance.

If you are interested to know more information about performing a company search, both locally and overseas, or other searches, e.g. a litigation search to check whether a company is being sued, a winding-up search to find out whether a company is being petition for winding-up, please visit our website at http://www.i-legalservice.com. In the meantime, caveat emptor - let the buyer beware!